The Center for Financial, Legal, and Tax Planning, Inc. 1 Succession Planning: Seven Key Issues You Need to Know Presented By: Bart A. Basi CPA / Attorney at Law

The Center for Financial, Legal, and Tax Planning, Inc. 2 INTRODUCTION Human life is finite Business existence is infinite Statistics Aim of this presentation: Educate you about Business Succession

The Center for Financial, Legal, and Tax Planning, Inc. 3 List of Topics I. What is Succession Planning II. How to Choose a Successor III. Estate Tax Laws IV. Planning with Life Insurance V. Planning with Trusts VI. Buy-Sell Agreements VII. Valuation of a Company

The Center for Financial, Legal, and Tax Planning, Inc. 4 I.What is Succession Planning? Is a process whereby the owner of the business creates a procedure wherein the ownership is either transferred or able to be smoothly transferred to the next generation.

The Center for Financial, Legal, and Tax Planning, Inc. 5 I.What is Succession Planning? Goals of Succession Planning A. Maintaining control B. Providing adequate income C. Minimizing tax liabilities D. Preserve going concern status of the business E. Provide sufficient liquidity

The Center for Financial, Legal, and Tax Planning, Inc. 6 II.How to Choose a Successor Fact: Many businesses fail to survive to the next generation because a successor is not chosen. Fact: Businesses with a well chosen successor face high odds of surviving. Fact: Family is not always best.

The Center for Financial, Legal, and Tax Planning, Inc. 7 II.How to Choose a Successor Major Options in Succession Planning: A.Sell or Gift to family members B.Sell to key employees in the business C.Sell to a Competitor DSell to an Investor

The Center for Financial, Legal, and Tax Planning, Inc. 8 III.The Estate Tax Laws A. Gross Estate All of the decedents property, real, or personal, tangible or intangible, wherever situated Property Interests Transfers During Lifetime Specific Properties

The Center for Financial, Legal, and Tax Planning, Inc. 9 III.The Estate Tax Laws B. Rates(45% in 2008 and 2009) YearExemption 20093,500, UNLIMITED 20111,000,000 C. States Community Property / Common Law

The Center for Financial, Legal, and Tax Planning, Inc. 10 IV.Planning with Life Insurance A. Key Man Insurance B. Group Term Insurance C. Whole Life Insurance D. Universal Life Insurance

The Center for Financial, Legal, and Tax Planning, Inc. 11 V.Planning with Trusts A.Conserve property B.Remove property from business risks C.Delegate financial affairs to trustee D.Safeguard inheritance E.Provide direction to a trustee F.Provide for childrens education G.Provide for parents H.Provide for surviving spouse

The Center for Financial, Legal, and Tax Planning, Inc. 12 VI.Buy/Sell Agreements Important for Liquidation A. Stock Redemption Agreement B. Cross Purchase Agreement

The Center for Financial, Legal, and Tax Planning, Inc. 13 VII.Valuing the Closely Held Business A. Adjusted Book Value B. Capitalization of Earnings C. Excess Earnings Capacity D. Cash Flow / Leveraged Debt Method E. Comparables Method

The Center for Financial, Legal, and Tax Planning, Inc. 14 Conclusion Business Succession is complex Business Succession Planning should begin right away Lack of Business Succession Plan can lead to the loss of the business.